20-1020 Discussion on New Public Safety Building
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Open Work Session Discussion on New Public Safety Building October 20, 2020 Mr. John Psota, Acting County Executive, Sheriff Mike Lewis, and Mr. Nick Rice, Purchasing Agent, came before Council. Mr. Psota said, as they progress through the Public Safety Building project and its latest projected cost estimate of approximately $28 million, the Finance Department was recently tasked with analyzing the prospective impact this estimate would have on the County’s long-term debt forecast and its debt policy. He said, given COVID’s budgetary impact and the Maryland State Bureau of Revenue’s estimate uncertainties, they applied estimated variables in this analysis to include the following: an interest rate of 3.5 percent on their debt; an applied 5 percent reduction in general fund revenue for FY22 with no general fund revenue for the next four years; and a capital project list of important funding needs over the next five years. He said, to be clear, there is an identified need for this Public Safety Building project. He said the purpose of this presentation is to fulfill their responsibility to provide the prospective impact that the capital projects listed could have on their future debt management and their future borrowing capacity. He said, for this presentation, he would like to introduce Pam Oland. Mrs. Pam Oland, Director of Finance, then came before Council and passed out handouts. She said, as Mr. Psota stated, she was asked to look at the availability of debt service and, moving forward, if they were to do this project, as well as other projects listed in their CIP, or potentially coming up in the next CIP. She said, as Mr. Psota stated, their County policy states that the sum of their principal and interest payments on general obligation debt should not exceed 12 percent of total general fund estimated revenue. She said, with the current estimate of FY21, they know COVID is going to impact that revenue number, so they used 5 percent as an estimate, which is about a $7.6 million-dollar reduction, to make their general fund revenue $145 million dollars. She said that 12 percent number of $145 million dollars means they would have the availability every year to spend about $17.5 million dollars in debt service. She said, with what they are projecting right now for FY21, that translates into having about $13 million dollars and change in debt service principal and interest payments, so that leaves space for FY22 to be able to have a debt service payment of about $4.2 million dollars. She clarified, she is rounding all of these numbers up for ease of talking about them. She said, in 2022 they will pay down some debt and it will go off their books, so that gives them availability again to go back up to that $17 million-dollar number to borrow another $1.2 million dollars. She said, then, in 2023 they will retire some debt, so in 2024 they will be able to have another principal and interest payment growth of $1.4 million dollars. She clarified, while doing this analysis, that $17 million dollars was their cap, they did not raise revenue through this five-year period, and 2025 and 2026 ate not listed on this because they are not really retiring a whole lot of debt in 2025 and 2026; thus, there is not really the availability to borrow a whole lot in 2025 and 2026 based on the current analysis of what is going to retire off their books. Mrs. Oland said they took a look at only five areas that require funding from the County for the next five years. She said they looked at the Board of Education, the Sheriff’s Department, the Airport, the Library, and Wor-Wic. She said the Airport and Library are numbers that came to them in last year’s CIP. She said the $19 million dollars for the Sheriff’s Department is what they would need to borrow to accomplish the plan as it is currently stated. She said the Board of Education and Wor-Wic have already submitted their CIP for 2022-2026, so she has updated these numbers using that. She said one thing to note on the 1 Board of Education is that their list includes $17.4 million dollars of forward funding, which means the State will repay the County that money if they move forward with the projects, but if the County stops the projects partway through, that is money that will not be recouped, so she made the worst-case scenario in this projection that the County would have to spend $46.2 million dollars for their list of items over the next five years. She said, in Wor-Wic’s last CIP they asked for the Applied Technology Building in 2022-2023, and in their newest CIP they have added a new building for 2024-2026 called a Learning Center. She clarified, that is new, so Council would not find it in the previous CIP, and it is not one they have even talked about, but because Wor-Wic presented it to the Administration before presenting Council with this information, they included it on this list. Mrs. Oland said, ultimately what this means over five years is, if they funded every single one of these projects, they would need $95 million dollars to borrow, and the last page of her presentation basically walks through whether they have the availability to borrow $95 million dollars. She said the $4.1 million dollars she showed Council on the third page saying they have that availability in 2022 translates at a 3.5 percent 20-year bond at about $60 million dollars they could borrow. She said, in 2022, the list on the fourth page shows $41 million dollars of spending. She said this schedule, basically, walks through what they would have left at the end of 2022, and there is still almost $19 million dollars left they could borrow, and they could put some new debt towards that based on their limit. She said it comes all the way down to the end of 2026, and, unless they get money back from the State for that $46 million dollars, they do not have the availability to borrow anything else, and they would be violating their policy after five years. She clarified, they would have tapped out all of their borrowing capacity on five Departments, and not be able to borrow for any other general fund project at the current estimates. Mrs. Oland concluded, basically, what this is trying to show Council is that they have some tough decisions in front of them as to what projects they want in their CIP, and at what level they want them for the next five years. She said, additionally, Council was asking about pay-go funding, and they are working with their financial advisor, Davenport, to get those numbers, but it is looking very slim without eroding their fund balance to have funding for pay-go, so pay-go is not really a savior in this process. She clarified, she does not have those exact numbers, but Council asked that question, so she is looking at that, but based on their current estimates, it appears that is also going to run out within the next five years without eroding their current fund balance. Mr. Holloway asked what method Mrs. Oland used to come up with the 5 percent reduction in their revenue estimate. He said, from what he is reading and hearing, and has heard from other people and the County Administration, it was going to be a lot more severe than that. Mrs. Oland responded, they looked at 8 percent, which would be an even further cut, but picked 5 percent because they feel it is going to be at least that much. Mr. Holloway then asked if Mrs. Oland came up with a number, or did she just pick a number, to which Mrs. Oland responded, they looked at a range of numbers, and they also made the decision that, based on where some of their revenues come from, right now with stimulus, etc., their revenues are holding up. She clarified, come an election in two weeks and changes at the federal government, this is all an estimate. Mr. Psota added, as they stated at the beginning of this presentation, for the purposes of what they are trying to do here, they have to come up with an educated guess, and they came up with the 5 percent, as he stated at the beginning, just as they came 2 up with 3.5 percent on the interest for their debt as it stands. Mr. Holloway said, so it is just a guess, to which Mr. Psota responded, yes. Mr. Holloway said that was what he was trying to figure out. Mr. Davis asked if this includes if they go into a recession, to which Mr. Psota responded, they do not know. He said, with the impact of COVID, they do not know, and with a structural deficit in the State, they just do not know, and there is also the election, so there are so many unknowns. He said, for the purposes of moving forward and as a discussion item as they prepare for their 2022 budget process, he knows they are here specifically for the discussion for the Public Safety Building, but this is basically an exercise for all of their CIP going forward. He clarified, as Mrs. Oland said, as far as which projects they are looking at, and what level they want to fund them, this is basically a larger discussion that there are so many uncertainties, so they are flying blind, and they just do not know.